Oberon Edifices and Estates P.Ltd, Trivandrum V. ITO, Trivandrum

ITA 369/COCH/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8535 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 20-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 04-06-2013
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: R KRISHNA IYER
• Keywords: Business income; Revised return

Judgement Text

ITA NOS./351&369/COCH/2013 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI B P JAIN, AM & GEORGE GEORGE.K, JM ITA NO.351/COCH/2013 (ASST YEAR : 2009-10) THE I.T.O., WARD-1(1), TRIVANDRUM. M/S. OBERON EDIF ICES & ESTATES (P) LTD., THE ARCADE, KARAMANA, TRIVANDRUM. ( REVENUE APPELLANT) VS (ASSESSEE -RESPONDENT) NO.369/COCH/2013 (ASST YEAR : 2009-10) M/S. OBERON EDIFICES & ESTATES (P) LTD., THE ARCADE, KARAMANA, TRIVANDRUM. THE I.T.O., WARD-1(1), TRIVANDRUM. ( ASSESSEE APPELLANT) VS (REVENUE -RESPONDENT) PAN NO. AAACO 7942E ASSESSEE BY SHRI R. KRISHNA IYER, CA REVENUE BY SHRI K.P. GOPAKUMAR, SR. DR DATE OF HEARING 20/05/2016 DATE OF PRONOUNCEMENT 0 6/06/2016 ORDER PER B.P. JAIN, AM: THESE CROSS APPEALS OF THE ASSESSEE AND THE R EVENUE ARISE FROM THE COMMON ORDER OF THE LD. CIT(A), TRIVANDRUM DATED 27 /03/2013 FOR THE ASSESSMENT YEAR 2009-10. ITA NOS./351&369/COCH/2013 2 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER THE LEARNED CIT(A), TRIVANDRUM IN SO F AR AS THE POINTS MENTIONED BELOW ARE CONCERNED IS OPPOSED TO LAW ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESS ING OFFICER TO COMPUTE THE COST PER SQUARE FEET INCLUDING FUTURE EXPENDITURE ALONGWITH THE EXPENDITURE ALREADY INCURRED IN RELATION TO THE TOTAL SALEABLE AREA FOR ARRIVING AT THE ESTIMATED COST OF CONSTRUCTION PER SQUARE FEET. 3. THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT REVIS ION OF BALANCE SHEET WAS NOT IN ACCORDANCE WITH INCOME TAX LAW ESPECIALLY TH E RATIO OF THE DECISION OF THE JURISDICTIONAL COURT IN THE CASE OF CIT VS. FOR BS, EWART & FIGGS LTD. (2004) 267 ITR 153. 4. THE LEARNED CIT(A) FAILED TO TAKE NOTE OF THE FA CT THAT THE ASSESSING OFFICER HAD CORRECTLY TAKEN THE VALUE OF THE BUILDING ASSES SABLE FOR AY 2009-10 BY REDUCING THE COST INCURRED FOR THE F.Y. 2009-10 & 2 010-11. 5. THE CIT(A) ALSO FAILED TO NOTE THAT INCOME TAX A CT AND RULES PERMIT ASSESSMENT OF INCOME AFTER ALLOWING EXPENDITURE INC URRED DURING THE RELEVANT FINANCIAL YEAR AND THERE IS NO CONCEPT OF DEDUCTION FOR FUTURE EXPENSES TO BE INCURRED FOR WORKING OUT COST PER SQ. FEET. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE ADVANCE D AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. INCOME FROM LETTING OUT CONSIDERED AS INCOME FR OM HOUSE PROPERTY, RS.54,41,293. 2. DISALLOWANCE OF EXPENSES TOWARDS GENERATOR MA IN DG EXPENSES RS.39,22,377/-. 3. DISALLOWANCE OF ADVERTISEMENT AND FACILITY MAN AGEMENT CHARGES, ADMINISTRATIVE CHARGES : RS.37,63,938/-. ITA NOS./351&369/COCH/2013 3 4. FIXING OF INCOME FROM CAR PARKING :R S.4,05,740/- 4. FIRST OF ALL WE SHALL TAKE UP THE REVENUES A PPEAL IN I.T.A. NO.351/COCH/2013 FOR THE ASSESSMENT YEAR 2009-10. THE BRIEF FACTS O F THE CASE AS EMANATING FROM THE ORDER OF THE ASSESSING OFFICER ARE REPRODUCED H EREINBELOW: 11. ACCORDING TO THE ASSESSEES OWN ADMISSION WHIC H IS ON ASST. RECORDS, THE PROFIT ON SALE OF BUILT UP AREA DURING THE YEAR IS TAXABLE IN THE HANDS OF THE ASSESSEE, I AM INCLINED TO ACCEPT THE CLAIM OF ASSE SSEE ON PROTECTIVE BASIS. SO THE GAINS FROM THE SALE OF A PORTION OF THE BUIL DING IS ACCEPTED ON PROTECTIVE BASIS WITHOUT PREJUDICE TO THE ASSESSMEN TS IN THE HANDS OF THE OWNERS IN WHOSE HANDS IT HAS ALREADY BEEN OFFERED S UBSEQUENTLY REVISED. THE PROFIT DECLARED BY THE ASSESSEE IN THE INVALID RETU RN IS RS.2,04,99,005. IN ORDER TO ARRIVE AT THIS FIGURE THE TOTAL VALUE OF BUILDIN G HAS BEEN TOTALED TO RS.48,58,56,973. THIS VALUE CONSISTS OF VALUE OF BU ILDING WORK IN PROGRESS DURING THE PERIOD 2009-10 AND 20-10-11 AMOUNTING TO RS.6,0 4,09.308. THIS VALUE OF BUILDING WORK IN PROGRESS SUBSEQUENT TO THE YEAR OF SALE CANNOT BE ADDED TO THE TOTAL VALUE OF THE BUILDING TO FIND OUT THE COS T PER SQUARE FEET AS THE SALE HAPPENED PRIOR TO THE CONSTRUCTION IN THE FINANCIAL YEAR 2009-10 AND 2010-11. IT CAN NEVER BE THE ARGUMENT THE VALUE OF THE SOLD AREA SHOULD BE COMPUTED INCORPORATING THE COST OF BUILDING CONSTRU CTED SUBSEQUENT THE SALE. REMOVING THE VALUE OF BUILDING WORK IN PROGRE SS DURING 2009-10 AND 2010-11, THE COST PER SQUARE FEET WOULD WORK OUT TO RS.1197. THEREFORE THE COST OF BUILDING SOLD WOULD BE RS.11,15,10,126. THE PROFIT ON SALE VALUE OF BUILDING WOULD BE RS.3,48,45,337. THIS PROFIT IS PR OTECTIVELY ASSESSED IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME. 5. THE LD. CIT(A) DELETED THE ADDITION AND HIS FIN DINGS ARE REPRODUCED HEREINBELOW: 10.15. THE NEXT ISSUE IN GROUND NO. 3(6) IS REGAR DING THE COST OF CONSTRUCTION PER SQ. FT. TAKEN BY THE ASSESSING OFFICER ON THE B ASIS OF TOTAL VALUE OF BUILDING AS ON 31.3.2009. THE ASSESSING OFFICER WORKED OUT THE SAID VALUE BY SUBSTRACTING THE VALUE OF WORK IN PROGRESS OF BUILD ING DURING THE PERIOD FY 2009-10 AND 2010-11 FROM THE TOTAL VALUE OF BUILDIN G AS ON 31.3.2011. THESE ITA NOS./351&369/COCH/2013 4 VALUES WERE TAKEN BY HIM FROM THE REVISED (INVALID) RETURN. AS PER THE ASSESSING OFFICER, SALE OCCURRED IN FY 2008-09 AND THEREFORE COST INCURRED DURING THE FINANCIAL YEARS 2009-10 AND 2010-11 CANN OT BE CONSIDERED FOR WORKING OUT COST PER SQUARE FEET OF AREA SOLD. THE APPELLANT HAS SUBMITTED THAT FOR WORKING OUT THE COST OF CONSTRUCTION PER S Q. FT. TOTAL EXPENDITURE UPTO THE COMPLETION OF BUILDING WITH REFERENCE TO THE TO TAL BUILT UP SALEABLE AREA AS TAKEN BY IT IN THE REVISED RETURN OF INCOME (INV ALID RETURN) SHALL BE TAKEN. THE CONTENTION OF THE APPELLANT IS THAT SALE RATE W AS TAKEN AFTER CONSIDERING THE EXPENDITURE TO BE INCURRED ON THE MALL TO MAKE IT A FULL FLEDGED SHOPPING MALL COMPLETE IN ALL ASPECTS WITH THE SPECIFIED AME NITIES SO ENTIRE COST SHALL BE TAKEN FOR THE PURPOSE. THE CONTENTION MADE BY T HE APPELLANT IS CORRECT. IN THIS CASE, DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE CONSTRUCTION OF MALL WAS COMPLETED AND THEREFORE, THE APPELLANT COU LD FIND OUT THE ACTUAL COST OF CONSTRUCTION PER SQ. FT. BY DIVIDING THE TO TAL EXPENDITURE ON CONSTRUCTION BY THE TOTAL SALEABLE AREA. IN A SITU ATION WHERE AT THE TIME OF ASSESSMENT THE BUILDING REMAINS INCOMPLETE, ESTIMAT ED FUTURE EXPENDITURE TO BE INCURRED IS ALSO CONSIDERED ALONG WITH THE EXPEN DITURE ALREADY INCURRED AND IS TAKEN AS COST RELATABLE TO THE TOTAL SALEABL E AREA I.E., SALEABLE AREA ALREADY BUILD AND THE SALEABLE AREA TO BE BUILT IN FUTURE, FOR ARRIVING AT THE ESTIMATED COST OF CONSTRUCTION PER SQ. FT. IT IS N OT A CASE OF MERE SALE OF COMMERCIAL SPACE BUT THE APPELLANT WAS REQUIRED TO PROVIDE AMENITIES LIKE ESCALATORS, LIFTS, PARKING, COMMON TOILETS ETC. ALS O. THEREFORE THE CONTENTIONS OF THE APPELLANT ARE ACCEPTED AND IT IS HELD THAT T HE ASSESSING OFFICER WAS NOT JUSTIFIED IN NOT TAKING THE VALUE OF BUILDING W ORK IN PROGRESS DURING THE FY 2009-10 AND 2010-11 FOR WORKING OUT THE COST PER SQ UARE FT. IT IS THEREFORE, DIRECTED THAT THE COST PER SQ. FT. SHALL BE TAKEN A S TOTAL EXPENDITURE INCURRED IN CONSTRUCTION DIVIDED BY TOTAL SALEABLE AREA FOR THE PURPOSE OF WORKING OUT THE PROFIT FROM SALE OF COMMERCIAL AREA. ADDITION MADE BY THE ASSESSING OFFICER OVER AND ABO VE THE AMOUNT OF PROFIT WORKED OUT AS ABOVE IS DELETED. 6. IT WAS MAINLY ARGUED BY THE LD. DR THAT THE A SSESSEE HAS ACCOUNTED FOR FUTURE EXPENSES, I.E., EXPENSES INCURRED FOR THE FI NANCIAL YEAR 2009-10 AND 2010- 11 RELEVANT TO THE ASSESSMENT YEAR 2010-11 AND 2011 -12 RESPECTIVELY FOR COMPLETION OF THE MALL, WHICH IN FACT SHOULD NOT HA VE BEEN TAKEN INTO ACCOUNT ITA NOS./351&369/COCH/2013 5 WHILE CALCULATING THE COST OF CONSTRUCTION PER SQUA RE FEET FOR SELLING THE COMMERCIAL SPACE. 7. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER H AND RELIED UPON THE ARGUMENTS MADE BEFORE THE LD. CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE FACTS OF THE CASE. IT WAS EXPLAINED THAT THE ASSESSEE HAS ARRIVED THE PRO FIT ON SALE OF BUILDING BY FOLLOWING METHOD: SALE VALUE OF BUILDING 1 46,355,463.00 , LESS: COST OF BUILDING SOLD 12 5,856,458.00 (93,158 SQ. FT. @ RS.1,351 20,499,005.00 THE PER SQUARE FEET RATE HAS BEEN COMPUTED BY THE A SSESSEE BY TAKING INTO ACCOUNT THE TOTAL AMOUNT OF THE CONSTRUCTION COST I NCURRED UPTO THE PERIOD ENDED 2010-11. AS THE BALANCE SHEET WAS REVISED ON 06/04/2011, THE ASSESSEE COMPANY WAS ABLE TO TAKE THE WHOLE CONSTRUCTION EXP ENSES OF THE MALL. THE CONTENTION OF THE ASSESSING AUTHORITY THAT THE ASSE SSEE CANNOT TAKE THE CONSTRUCTION COST OF THE YEARS AFTER THE SALE HAS H APPENED, DOES NOT HAVE ANY BASE. THE SPACE WAS SOLD AT THE ABOVE RATE IN THE M ALL IN THE CONDITION THAT THE MALL WILL BE A FULL FLEDGED SHOPPING MALL COMPLETE IN ALL ASPECTS WITH THE SPECIFIED AMENITIES. THE ASSESSEE COMPANY WAS NOT STOPPING THE CONSTRUCTION ITA NOS./351&369/COCH/2013 6 RIGHT AFTER THE SALE HAD HAPPENED. THE CONSTRUCTION OF THE MALL WAS NOT COMPLETE AT THE TIME OF SALE. THE ASSESSEE COMPANY WAS REQUIRED TO COMPLETE THE CONSTRUCTION WITH ALL AMENITIES WHICH WAS COMPL ETED BY 2010-11 BY INCURRING AN EXPENSE OF RS.48,58,56,973/-. THE COPY OF THE B ALANCE SHEET FOR FY 2010-11 FOR PROVING THAT THE CAPITALIZATION OF THE BUILDING HAD HAPPENED UPTO THE END OF THE FY 2010-11 WAS SUBMITTED. IT WAS SUBMITTED THAT IF THE ASSESSEE COMPANY WAS NOT ABLE TO TAKE INTO ACCOUNT THE WHOLE CONSTRU CTION COST, THE COMPANY WOULD HAVE TAKEN A CERTIFICATE FROM THE ARCHITECT C ERTIFYING THE PER SQUARE FEET RATE CONSTRUCTION COST OF THE BUILDING. THE ASSESS EE HAS DONE THE COMPUTATION BY TAKING THE WHOLE CONSTRUCTION COST UPTO 2010-11 IN ORDER TO HAVE MORE TRANSPARENCY TO THE COMPUTATION. IT WAS FURTHER Q UOTED AND EXPLAINED THAT THE TOTAL CONSTRUCTION COST INCURRED BY THE COMPANY UPT O 31.3.2006 WAS ONLY RS.2,30,05,960. AS PER ASSESSING AUTHORITYS CONTE NTION, IF THE SAME TOTAL AREA OF UNFINISHED PORTION TOTALING 93,158 SQ. FT. HAD BEEN SOLD DURING THE YEAR 2005-06, AT THE TIME OF STARTING CONSTRUCTION ITSELF, THE A SSESSEE NEED TO TAKE ONLY RS.64.70 (2,30,05,960/3,55,572) PER SQUARE FEET RATE, WHICH WAS NOT PRACTICAL AND WAS NOT A DEAL WITH THE BUYERS. 9. WHEREAS THE ASSESSING OFFICER WORKED OUT THE S AID VALUE BY SUBSTRACTING THE VALUE OF WORK IN PROGRESS OF THE BUILDING DURING TH E PERIOD, I.E., FINANCIAL YEARS 2009-10 AND 2010-11 FROM THE TOTAL VALUE OF BUILDIN G AS ON 31.03.2011. WE APPRECIATE THE ARGUMENTS MADE BY THE LD. COUNSEL FO R THE ASSESSEE AND THE ITA NOS./351&369/COCH/2013 7 FINDINGS OF THE LD. CIT(A) THAT THE SALE RATE WAS T AKEN AFTER CONSIDERING THE EXPENDITURE TO BE INCURRED ON THE MALL TO MAKE IT A FULL FLEDGED SHOPPING MALL COMPLETE IN ALL ASPECTS WITH THE SPECIFIED AMENITIE S, SO THAT ENTIRE COST OF CONSTRUCTION SHALL BE TAKEN FOR THE PURPOSE. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, THE CONSTRUCTION OF THE MALL WAS COMPL ETED AND THEREFORE, THE ASSESSEE COULD FIND OUT THE ACTUAL COST OF THE CONS TRUCTION SQ. FT. BY DIVIDING THE TOTAL EXPENDITURE ON CONSTRUCTION BY THE TOTAL SALE ABLE AREA. IN A SITUATION WHERE AT THE TIME OF ASSESSMENT THE BUILDING REMAIN S INCOMPLETE, THE ESTIMATED FUTURE EXPENDITURE TO BE INCURRED IS ALSO CONSIDERE D ALONG WITH THE EXPENDITURE ALREADY INCURRED AND IS TAKEN AS COST RELATABLE TO THE TOTAL SALEABLE AREA I.E., SALEABLE AREA ALREADY BUILT AND THE SALEABLE AREA T O BE BUILT IN FUTURE FOR ARRIVING AT THE ESTIMATED COST OF CONSTRUCTION PER SQ. FT. THE ASSESSEE WAS REQUIRED TO PROVIDE AMENITIES LIKE ESCALATORS, LIFTS, PARKING, COMMON TOILETS ETC. ALSO. THEREFORE, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN NOT TAKING THE VALUE OF BUILDING WORK IN PROGRESS DURING THE FY 2009-10 AND 2010-11 FOR WORKING OUT THE COST PER SQUARE FT. WHICH IS VERY ESSENTIAL IN A SI TUATION LIKE THIS. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A) WH O HAS RIGHTLY ALLOWED THE GROUND OF THE ASSESSEE AND DELETED THE ADDITION SO MADE BY THE ASSESSING OFFICER. MOREOVER, IT HAS BEEN HELD BY THE LD. CIT(A) VIDE P ARA 10.10 TO 10.14 THAT ANY RECEIPT OVER AND ABOVE THE AMOUNT AS PER THE ORIGIN AL AGREEMENT ON WHICH THE ASSESSEE HAS GOT RIGHT OF OWNERSHIP ON 30/12/2010 I N VIEW OF THE REVISED AGREEMENT, INCOME IS TAXABLE IN THE HANDS OF THE AS SESSEE AS BUSINESS INCOME ITA NOS./351&369/COCH/2013 8 FOR THE ASSESSMENT YEAR 2011-12 ONLY, I.E., THE EXT RA AMOUNT IS TO BE TAXED AS INCOME FOR THE ASSESSMENT YEAR 2011-12. THE REVENU E IS NOT IN APPEAL. WHEREAS AS PER ASSESSING OFFICER, THE AMOUNT IS TO BE TAXED , ONE IN THE IMPUGNED YEAR AND SECONDLY IN THE ASSESSMENT YEAR 2011-12, I.E. T AXING ONE INCOME TWICE IS ILLEGAL AND AGAINST THE SPIRIT OF LAW. ACCORDINGL Y, ON BOTH COUNTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHO HA S RIGHTLY DELETED THE ADDITION SO MADE. THUS THE GROUNDS RAISED BY THE REVENUE ARE D ISMISSED. ACCORDINGLY, THE APPEAL OF THE REVENUE IN I.T.A. NO. 351/COCH/2013 I S DISMISSED. 10. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E IN I.T.A. NO. 369/COCH/2013 FOR A.Y. 2009-10. AS REGARDS, ISSUE NO. 1 THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY PARTLY COMPLETED CONSTRUCTION OF MALL AT KO CHI NAMED AS OBERON MALL. THE LAND OVER WHICH THE MALL WAS BUILT IS OWNED BY M/S. OBERON TRADING CORPORATION, TRIVANDRUM, WHICH IS THE SISTER CONCER N OF THE ASSESSEE. IN THE RETURN OF INCOME FILED BY THE ASSESSEE, THE INCOME FROM LETTING OUT SHOPS WAS SHOWN AS BUSINESS INCOME WHEREAS THE ASSESSING OFFI CER HAS HELD THAT THE RENTAL INCOME WAS ASSESSABLE UNDER THE HEAD HOUSE PROPERT Y WHICH WAS CONFIRMED BY THE LD. CIT(A). 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE FACTS OF THE CASE. THE ASSESSING OFFICER RELIED UPON DECISION OF THE H ONBLE SUPREME COURT IN THE ITA NOS./351&369/COCH/2013 9 CASE OF CIT VS. SHAMBHU INVESTMENTS (P) LTD., 263 I TR 143 AND JUDGMENT OF THE HONBLE HIGH COURT OF KERALA IN THE CASE OF ATTUKAL SHOPPING COMPLEX 259 ITR 567. THE RELIANCE PLACED BY THE ASSESSEE ON THE DE CISION OF KOLKATA BENCH OF ITAT IN THE CASE OF PFH MALL AND RETAIL MANAGEMENT VS. ITO 298 ITR 371 AND THE HONBLE HIGH COURT OF ALLAHABAD IN THE CASE OF PATE SEHARI ELECTRICALS AND ASSOCIATED INDUSTRIES LTD. 282 ITR 61 WAS HELD AS N OT APPLICABLE BY THE ASSESSING OFFICER FOR THE REASONS MENTIONED IN THE ASSESSMENT ORDER. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ITS CASE IS COVERED BY THE DECISION OF THE ITAT, KOLKATA IN THE CASE OF PFH MALL AND RETAIL MANAGEME NT (SUPRA) AND ALSO BY THE HONBLE HIGH COURT OF ALLAHABAD IN THE CASE OF GOEL BUILDERS OF I.T.A. NO. 127 OF 2005 DECIDED ON 24-05-2010. THE ASSESSEE HAS ALSO RELIED UPON A NUMBER OF OTHER DECISIONS. 12. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMIT TED THE EXPLANATION BEFORE THE LD. CIT(A) AT PGS.10,11,12&13 WHICH IS VERY RELEVAN T AND IS REPRODUCED HEREINBELOW: NOW THE QUESTION IS WHETHER THE RATIO IN THECAE OF ATTUKKAL SHOPPING COMPLEX PVT.LTD. REPORTED IN 259 ITR 567 ( KER ) JURISDICTIONAL HIGH COURT (PAGE NO. 27-32) IS APPLICABLE IN THE APPELLANTS CASE OR THE RATIO IN THE JUDGMENT IN THE CASE OF PFH MALL & RETAIL MANAGEMENT LTD. WHERE IN IMPORTANT POINTS IN EACH PARA ARE ELABORATELY NARRATED. 2. IN THE DECISION IN 259 ITR 567 OF THE JURISDICTI ONAL HIGH COURT OF KERALA HELD THAT 505 OF THE INCOME HAS TO BE CONSIDERED AS (I) INCOME FROM HOUSE PROPERTY AND (II) 505 OF THE INCOME FROM BUSINESS. IN THAT CASE IT IS SHOPPING ITA NOS./351&369/COCH/2013 10 COMPLEX 170 ROOMS LET OUT. COMMON FACILITIES LIKE ELECTRICITY IN COMMON AREAS, PARKING FACILITY, SECURITY PERSONNEL WERE PR OVIDED, PARA 2 PAGE 1 OF THIS WRITTEN SUBMISSION 3 FLOORS 6 LATRINES INSIDE AND 4 OUTSIDE PARKING FACILITY WITH TWO SECURITY PERSONNEL. 3. KIND REFERENCE IS INVITED TO THE DECISION OF THE HONBLE KOLKATA HIGH COURT IN 298 ITR 327 PFH MALLS CASE PAGE 8 OF THIS NOTE . IN THIS CASE, PARA WISE BRIEF PARTICULARS HAVE BEEN FURNISHED SEPARATELY. THE MA IN CONTENTION IS EXPLOITATION OF IMMOVABLE PROPERTY BY WAY OF COMMER CIAL PROPERTIES AND RESULTANT INCOME, UTILIZATION OF SPACE FOR PROVIDIN G SHOPPING FACILITIES TO CUSTOMERS IS ALSO A COMMERCIAL ACTIVITY. PARA 2 P AGE 9. 4. 114 ITR 779 (CAL) (APPENDIX0, 66 ITR 596 (SC) (P ARA 2 OF BRIEF NOTE) RELIED ON. VARIOUS SERVICES PAGE 378 OF THE ORDER A) SERVICE S AND FACILITIES (B) OTHER AMENITIES 9 ITEMS, 4 REQUIREMENTS LAID DOWN BY TH E HONBLE SUPREME COURT QUALIFIED AS BUSINESS ACTIVITY. AS SUCH, IN THIS C ASE 8 ITEMS OF SERVICES AND FACILITIES 9 ITEMS AND OTHER AMENITIES ARE PROVID ED. 5. IN THE APPELLANTS CASE ALL THE FACILITIES ARE P ROVIDED. THEREFORE, THE RATIO IN THE SAID JUDGMENT IS DIRECTLY APPLICABLE. PARA 20 P AGE 14 OF THIS NOTE. 6. KIND REFERENCE IS ALSO INVITED TO PAGE NO. 47 AN NEXURE A HANDBOOK- MAINTENANCE OF RULES AND REGULATIONS PARA 3 MAINT ENANCE AND UPKEEP OF COMMON AREAS AND FACILITIES AC GENERATOR ETC. FOR W ORK. PARA 21 PAGE 14OF THIS NOTE) 7. FACILITIES INCLUDE PROVIDING 100% CAPTIVE POWER FOR COMMON AREAS AND FACILITIES. PAGE 49 PARA C. AC FACILITY IN COMMON A REA AND ALSO MAINTENANCE OF UTILITY EQUIPMENTS LIKE AC, DIESEL GENERATOR LIG HTINGS, ELEVATORS, ESCALATORS, FANS AND OTHER EQUIPMENTS. SIDE WALKS, DOORWAYS, V ESTIBULES, HALLS, STAIRCASE AND OTHER SIMILAR AREAS USED FOR DISPOSAL OF TRASH. PLUMBING FIXTURES SHALL BE USED ONLY FOR THE PURPOSES WHICH THEY ARE DESIGNED. SIGNS, ADVERTISEMENTS, GRAPHICS OR NOTICES VISIBLE FROM PUBLIC CORRIDORS O R FROM OUTSIDE THE BUILDING. SECURITY OF THE PREMISES BOTH DURING BUSINESS HOURS AND ALSO AFTER BUSINESS HOURS (PARA 22 PAGE 14 OF THIS NOTE). 8. OWNER AGREES TO COMPLY WITH FIRE SAFETY PROCEDUR ES. PAGE 54 PARA 16. THE PROMOTER SHALL PROVIDE LITTER BINS WITH GARBAGE LIT TERS IN AND AROUND THE COMMON AREAS/LOBBIES ETC. THESE SHALL BE CLEARED/CL EANED AND DUMPED TO THE DUMPING POINT BY THE HOUSE KEEPING STAFF PERIOD ICALLY. (PARA 23 PAGE NO. 15 OF THIS NOTE). 9. SEPARATE LEASE AGREEMENT EXECUTED WITH EACH TENA NT. MAINTENANCE CHARGES INCLUDE (PARA 9.2) COMMON AREAS/PASSAGES, G ENERATOR, SECURITY OF ITA NOS./351&369/COCH/2013 11 THE BUILDING, FACADES, WINDOWS, DOORS, REPLACEMENT OF LOCKS, TAPS, BROKEN TILES OR OTHER PARTS OF THE BUILDING, CHARGES FOR WATER A ND ELECTRICITY CONSUMED, REPLACEMENT OF BULBS, TUBES, WIRES, HOLDERS, SHADES , PIPES, LINES OVER HEAD TANKS, SUMP, ANTENNA AND SUCH OTHER PARTS ETC. AS M ENTIONED IN PARA 9.2 OF THE AGREEMENT. 10. AS PER PARA 10.2 THE LESSOR WILL PROVIDE CHILLE D WATER TAPING AND AHU WHICH WILL BE TERMINATED. 11. AS PER PARA 11 RAW CONNECTED POWER FROM KSEB WILL BE PROVIDED AS MENTIONED THEREIN. POWER BACK UP 100%. AIR CONDITIONING (HVAC) LESSOR SHALL PROVIDE COMPLE TE CENTRALIZED CHILLED AIR CONDITIONING SYSTEM INCLUDING AHUS REQUIRED ETC. W ITHIN THE LESSEES PREMISES .AMBIENT TEMPERATURE OF 23 DEGREES PLUS/MINUS 2 DE GREES) INTERNAL DUCTING. ELEVATORS AND ESCALATORS IN COMMON AREA ETC. POWER SAFETY AND SUPPRESSION. IMPORTANT POINTS 1. CONCEPT OF SHOPPING MALL/SHOPPING COMPLEX MAY KI NDLY BE NOTED. ALL THE SHOPS IN THE MALL ARE INSIDE ONE BUILDING. FROM TH E ENTRANCE AND AGAIN ENTRANCE TO THE BUILDING SECURITY PERSONNEL ARE PRO VIDED. GUIDANCE IS ALSO GIVEN BY THE SECURITY PERSONNEL TO THE CUSTOMERS/VI SITORS. EVEN CINEMA THEATRE IS INSIDE THE MALL FOR ENTERTAINMENT, FULLY AIR CON DITIONED BUILDINGS INCLUDE COMMON AREAS, 24 HOURS SECURITY, 24 HOURS GENERATOR FROM DG AND WATER SUPPLY. 2. ADVERTISEMENT EXPENSES SUBSTANTIAL AMOUNT BENE FICIAL TO THE SHOP OWNER, INDIRECTLY ADVERTISEMENT FOR THEM ALSO. IN THE CAS E OF ATTUKKAL SHOPPING COMPLEX ONLY TWO SECURITY PERSONNEL ROUND THE CLOCK . ONLY 6 LATRINES INSIDE AND 4 OUTSIDE. SERVICES ARE ONLY ELECTRICAL CONNEC TION IN COMMON AREAS. 3. ALL THE FACILITIES ARE PROVIDED IN 298 ITR 371 (KOL) PFH MALL AND IN THE APPELLANTS CASE ALSO ALL THE FACILITIES ARE PROVID ED, IDENTICAL. THE HONBLE SUPREME COURT HAS HELD THAT 4 REQUIREMENTS LAID DOW N IS QUALIFIED AS BUSINESS ACTIVITY PAGE 378 OF THE JUDGMENT PARA 5 PAGE 10 OF THIS NOTE. IN THIS CASE ALSO ALL THE REQUIREMENTS LAID DOWN BY THE HONBLE SUPREME COURT ARE COMPLIED WITH AND THEREFORE WILL COME UNDER BUSINES S ACTIVITY. ITA NOS./351&369/COCH/2013 12 4. IN THIS CONNECTION, KIND REFERENCE IS ALSO INVI TED TO THE DECISION OF THE JURISDICTIONAL HIGH COURT OF KERALA IN 5. 221 ITR 117 (KER) MALABAR PIONEER HOSIERY PVT. LTD. VS. CIT JUDGMENT DT. 16.2.1996. BUSINESS INCOME OR INCOME FROM PROPERTY INFORM FR OM LETTING OUT COMMERCIAL ASSET GENERAL PRINCIPLES ASSESSES ENGAGED IN MA NUFACTURE OF GOODS SHED OWNED BY ASSESSES LET OUT TRIBUNAL JUSTIFIED IN H OLDING THAT RENTAL INCOME CONSTITUTED INCOME FROM BUSINESS. NO QUESTION OF LA W ARISES. PARA 11-PAGE 5-8 OF THIS WRITTEN SUBMISSION. THE APPELLANT ALSO RELIED ON THE DECISION IN 114 IT R 779 (CAL) IN PARA 9 PAGE 10. 265 ITR 379 (GUJ) PARA 10 PAGE 11. 249 ITR 47 PARA 11 114 ITR 779 (CAL) IN PARA 12 208 ITR 645 PARA 1 BUSINESS INCOME OR INCOME FROM PROPERTY INFORM FR OM LETTING OUT COMMERCIAL ASSET- GENERAL PRINCIPLES ASSESSEE ENGAGED IN MAN UFACTURE OF GOODS SHED OWNED BY ASSESSEE LET OUT TRIBUNAL JUSTIFIED IN H OLDING THAT RENTAL INCOME CONSTITUTED INCOME FROM BUSINESS. NO QUESTION OF LA W ARISES. PARA III PAGE 5-8 OF THIS WRITTEN SUBMISSION. THE APPELLANT ALSO RELIED ON THE DECISION IN 114 IT R 779 (CAL). IN PARA 9 PAGE 10. 265 ITR 379 (GUJ) PARA 10 PAGE 11. 249 ITR 47 PARA 11 114 ITR 779 (CAL) IN PARA 12 208 ITR 645 PARA 14 PAGE 12 249 ITR 47 PARA 15 PAGE 14 IN ALL THESE CASES, EXPLOITATION OF COMMERCIAL ASSE T HELD TO BE TREATED AS BUSINESS INCOME. FOR THE REASONS STATED ABOVE, IT IS SUBMITTED THAT THE RATIO OF THE DECISION OF THE HONBLE HIGH COURT OF KERALA (JURISDICTIONAL HI GH COURT) IS NOT APPLICABLE IN THE APPELLANTS CASE. WHEREAS IN THE APPELLANTS CA SE THE DECISION OF THE HONBLE KOLKATA HIGH COURT IN 298 ITR (AT) 371 (KOL ) AND THE DECISION IN 221 ITR 117 JURISDICTIONAL HIGH COURT OF KERALA ARE DIRECTL Y APPLICABLE. ITA NOS./351&369/COCH/2013 13 13. IN THE PRESENT CASE, THE ASSESSEE HAS EXPLOIT ED THE IMMOVABLE PROPERTY BY WAY OF COMMERCIAL ACTIVITIES AND RESULTANT INCOME, UTILIZATION OF SPACE FOR PROVIDING SHOPPING FACILITIES TO CUSTOMERS IS ALSO A COMMERCIAL ACTIVITY AND SUCH ACTIVITIES HAVE BEEN HELD TO BE BUSINESS ACTIVITY B Y THE HONBLE KOLKATA HIGH COURT IN THE CASE OF PFH MALL RETAIL MANAGEMENT LTD . (SUPRA) AND IN THE CASE OF CIT VS. NATIONAL STORAGE PVT. LTD., 66 ITR 596, TH E HONBLE SUPREME COURT HAS HELD VARIOUS SERVICES, SERVICES AND FACILITIES AND OTHER AMENITIES AS BUSINESS ACTIVITY. IN THE PRESENT CASE, THE ASSESSEE HAS PRO VIDED ALL THE FACILITIES AND THEREFORE THE RATIO OF THE DECISION IN THE CASE OF IN THE CASE OF PFH MALL RETAIL MANAGEMENT LTD. (SUPRA) AND THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. NATIONAL STORAGE PVT. LTD. (SUPRA) IS DIRECTLY APPLICABLE TO THE PRESENT CASE. 14. AS PER THE HANDBOOK - MAINTENANCE OF RULES AND REGULATIONS WITH REGARD TO MAINTENANCE OF MALL, IT IS THE RESPONSIBILITY OF THE ASSESSEE TO MAINTAIN AND UPKEEP COMMON AREAS AND FACILITIES, AC, GENERATOR E TC. INCLUDING FACILITIES PROVIDED FOR CAPTIVE POWER IN COMMON AREAS, AC FACI LITY IN COMMON AREA AND ALSO MAINTENANCE OF UTILITY EQUIPMENTS LIKE AC, DIE SEL GENERATOR LIGHTINGS, ELEVATORS, ESCALATORS, FANS AND OTHER EQUIPMENTS, S IDE WALKS, DOORWAYS, VESTIBULES, HALLS, STAIRCASE AND OTHER SIMILAR AREA S USED FOR DISPOSAL OF TRASH. PLUMBING FIXTURES SHALL BE USED ONLY FOR THE PURPOS ES WHICH THEY ARE DESIGNED, ITA NOS./351&369/COCH/2013 14 SIGNS, ADVERTISEMENTS, GRAPHICS OR NOTICES VISIBLE FROM PUBLIC CORRIDORS OR FROM OUTSIDE THE BUILDING, SECURITY OF THE PREMISES BOTH DURING BUSINESS HOURS AND ALSO AFTER BUSINESS HOURS IS THE RESPONSIBILITY OF THE A SSESSEE. THE ASSESSEE HAS BEEN HELD RESPONSIBLE FOR FIRE SAFETY PROCEDURES, COMMON /PASSAGES, GENERATOR, SECURITY OF THE BUILDING, FACADES, WINDOWS, DOORS, REPLACEMENT OF LOCKS, TAPS, BROKEN TILES OR OTHER PARTS OF THE BUILDING, CHARGE S FOR WATER AND ELECTRICITY CONSUMED, REPLACEMENT OF BULBS, TUBES, WIRES, HOLDE RS, SHADES, PIPES, LINES OVER HEAD TANKS, SUMP, ANTENNA AND SUCH OTHER PARTS ETC. THE ASSESSEE HAS SUBMITTED THE EXPLANATION IN HIS NOTE TO THE AUTHOR ITIES BELOW WHICH HAS BEEN REPRODUCED HEREINABOVE WHICH IN FACT HAS NOT BEEN T AKEN INTO PROPER PERSPECTIVE BY THE ASSESSING OFFICER. IN SUCH CIRC UMSTANCES AND FACTS OF THE CASE, THE INCOME OF THE ASSESSEE IS FROM THE EXPLOI TATION OF THE IMMOVABLE PROPERTY AND IS ESSENTIALLY TO BE HELD AS BUSINESS INCOME IN VIEW OF OUR FINDINGS AND THE DECISIONS RENDERED HEREINABOVE. 15. THE ASSESSEE IS ACCORDINGLY ALLOWED THE EXPEN DITURE ON GENERATOR, (DG EXPENSES), ADVERTISEMENT CHARGES, FACILITIES MANAGE MENT CHARGES, ADMINISTRATIVE CHARGES ETC. AND ACCORDINGLY, THE IN COME FROM DISPLAY AND CAR PARKING ARE THE BUSINESS INCOME OF THE ASSESSEE. TH E EXPENSES INCURRED IN EARNING SUCH INCOME IS HELD TO BE BUSINESS EXPENDIT URE. ITA NOS./351&369/COCH/2013 15 16. LAST BUT NOT THE LEAST, THE INCOME TAX DEPART MENT ITSELF FOR THE ASSESSMENT YEAR 2013-14 IN ASSESSEES OWN CASE HAS TREATED THE SAID INCOME AS BUSINESS INCOME. THE RELEVANT FINDINGS OF THE ASSESSING OFFI CER VIDE HIS ORDER DATED19/03/2016 ARE REPRODUCED HEREINBELOW:- 2. DURING THE HEARING, THE AUTHORIZED REPRESENTATI VE ARGUED THAT THE BUSINESS OF THE ASSESSEE IS DEVELOPING, RUNNING AND MAINTAIN ING SHOPPING COMPLEX AND HENCE THE INCOME FROM THIS OPERATIONS DECLARED UNDE R THE HEAD BUSINESS INCOME. THE AR FURTHER ARGUED THAT ACQUIRING LAND FIR CONSTRUCTING SUPERSTRUCTURE THEREON COULD NOT BE CONSIDERED AS I NVESTMENT IN A PROPERTY FOR EARNING RENTAL INCOME ONLY. WHERE, LETTING OUT OF THE PROPERTY WAS A COMPOSITE ONE WITH THE HOST OF SERVICES AND AMENITI ES, ANY INCOME DERIVING OUT OF SUCH ACTIVITY HAS TO BE CHARGED AS INCOME FR OM BUSINESS. HE FURTHER PLEADED THAT THE ASSESSEE HAD CREATED COMMERCIAL IN FRASTRUCTURE AND THE SERVICES RENDERED WERE COMPLEX COMMERCIAL/BUSINESS ACTIVITY. THE ROLE OF THE ASSESSEE WAS A PROPERTY MANAGER RATHER THAN A PASSI VE OWNER OF THE PROPERTY. THE AR OF THE ASSESSEE ALSO SUBMITTED A WRITTEN NOT E ALONG WITH COPY OF HONBLE SUPREME COURT JUDGMENT IN THE CASE OF CHENN AI PROPERTIES & INVESTMENTS LTD. VS. CIT (2015) 373 ITR 673 (SC), 2 015 231 TAXMAN 336(SC) AND PLEADED THAT THE FACTS OF THE CITED CASE ASSESSEE M AY BE TREATED AS INCOME FROM BUSINESS OR PROFESSION. I HAVE CAREFULLY CONS IDERED THE ARGUMENTS PUT FORTH BY THE AR OF THE ASSESSEE AND THERE IS NO DIS PUTE THAT THE INCOME RECEIVED IS NOT FROM THE BARE LETTING OF THE TENANT OR FROM THE LETTING ACCOMPANIED BY INCIDENTAL SERVICE OR FACILITIES, BU T THE SUBJECT HIRED OUT IS A COMPLEX ONE AND THE INCOME OBTAINED IS NOT SO MUCH BECAUSE OF THE BARE LETTING OF THE STRUCTURE, BUT BECAUSE OF THE FACILI TIES AND SERVICES RENDERED, THE OPERATION INVOLVED IN SUCH LETTING OF THE PROPERTY MAY BE OF THE NATURE OF BUSINESS OR TRADING OPERATIONS AND HENCE SAME CAN B E RIGHTLY ASSESSED UNDER THE HEAD BUSINESS INCOME. 17. ACCORDINGLY, THE ASSESSEES INCOME IS TREATED AS BUSINESS INCOME. IN THE CIRCUMSTANCES AND FACTS OF THE CASE, ALL THE GROUND S OF THE ASSESSEE ARE ALLOWED. THUS THE APPEAL OF THE ASSESSEE IN I.T.A . NO.369/COCH/2013 IS ALLOWED. ITA NOS./351&369/COCH/2013 16 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 - 06-2016 SD/- SD/- (GEORGE GEORGE K.) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE : COCHIN DATED: 6TH JUNE , 2016 GJ COPY TO: 1. M/S. OBERON EDIFICES & ESTATES (P) LTD., THE ARCA DE, KARAMANA, TRIVANDRUM. 2. THE INCOME TAX OFFICER, WARD-1(1), TRIVANDRUM. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS), TRIVAND RUM 4. THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. THE DR/ITAT, COCHIN BENCH. 6. GUARD FILE. BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN 1.DATE OF DICTATION : 31/05/2016 ITA NOS./351&369/COCH/2013 17 2.DATE ON WHICH THE TYPED DRAFT IS PLACED 2/6/2016 BEFORE THE DICTATING MEMBER OTHER MEMBER: 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . PS/PS: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER : 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. PS/PS : 6. DATE ON WHICH THE FILE GOES TO BENCH CLERK: 7. DATE ON WHICH THE FILE GOES TO HEAD CLERK: 8. DATE ON WHICH THE FILE GOES TO ASSISTANT REGISTR AR 9. DATE OF DISPATCH OF THE ORDER: